Last “man” standing
The project concerned a 40 storey prestigious office block in Bishopgate, London. The main design and build contractor, Multiplex, incurred a loss of £12 million for delay and disruption which it tried to recover from three separate parties.
Firstly, Multiplex’s subcontractor Dunne. They undertook temporary works design in connection with the construction of the concrete frame for the office block. However, they went bust so there was no recovery there.
Secondly, Dunne’s designer of these temporary works. However, they were based in the Middle East and held no insurance so there was no recovery there either.
That left the third party checker, RNP, who had been engaged by Dunne to provide a temporary works design check. I’ll come on to cover what third party checkers do in a moment. Unfortunately, in due course, RNP went bust too.
However, that left the insurers of RNP, a company called Argo, as the last entity standing, with PI cover of £5 million.
After Dunne’s demise, a new subcontractor was engaged who flagged to Multiplex that the construction methodology was considered by them to be unsafe. A new methodology required to be developed. This took time and, of course, cost money.
Multiplex, looking to recover its lost cash, turned to RNP, or to be more precise, its insurers. It did not have a collateral warranty from RNP to rely upon. It therefore had no choice but to argue that RNP owed it a duty of care.
If Multiplex could establish a duty of care, it could recover its economic loss notwithstanding it did not possess a collateral warranty.
The design checker’s contract
So what were the arrangements between Dunne and RNP?
Well that was the issue. RNP had apparently issued a consultancy agreement the terms of which were clear and provided that the duty of care was one of reasonable skill and care and diligence to its client only and, importantly, that no rights would be conferred on any third party.
However, Dunne had countered with its own form of consultancy agreement. The court, on the very thin evidence available to it, concluded there was a contract between RNP and Dunne, but not one incorporating the protections sought by RNP.
What was clear was that there was certainly no contract between RNP and Multiplex. So the challenge for Multiplex was to persuade the court that somehow, whether by negligent misstatement or otherwise, RNP had assumed liability to Multiplex.
There was no precedent of a third party checker being liable to a main contractor in these circumstances i.e. where the checker was contracted to the subcontractor. So the court looked at the issue from first principles.
Without too much difficulty, the court concluded that Multiplex was not entitled to recover from RNP the economic loss suffered by it.
Category III design checks
Not every design needs the same level of safety checks. But complex or innovative designs, which result in complex sequences of moving and or construction of either temporary or permanent works will certainly require a check.
Moving bridges, highways, rail structures and a large range of lifting equipment (eg. cranes) all require what are called Category III checks being an independent check by another company. Further, sometimes design and build contractor’s insurers will insist on Cat III checks of design as a risk mitigation measure.
The purpose of the design check is to determine whether it conforms to the design brief and can be expected to provide a safe engineering solution.
The Cat III checker should carry out the check without reference to the designer's calculations using only the design brief, design statement, drawings and specification and associated information not produced by the designer.
The fee for such design checks is modest but the liability is potentially very significant unless, as would be sensible commercial practice, the design checker limits its liability.
Three key lessons
Main contractors - employ a competent subcontractor who can exhibit evidence of professional indemnity cover for any design activities undertaken by it, be that temporary works design or permanent works design.
Ultimate owners of infrastructure or, as here, the main contractors - provide that any Cat III checker should deliver a collateral warranty in respect of the design check services, accepting that the consultancy services agreement with the Cat III checker will likely have a relatively low cap on liability.
Designers providing services such as CAT III checking - do not provide any meaningful services to your employer and leave yourself potentially exposed to claims from third parties until you have agreed terms of business which suitably limit your liability to your employer alone with a specific cap on liability; and, where appropriate, to agreed beneficiaries under collateral warranties. The same comments apply to any design appointment.
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